Frequently Asked Questions (FAQs)
What is project finance?
Project finance is a way to fund big projects—like building roads, power plants, or factories—without putting your company’s assets at risk. Instead, the project itself (its cash flow and assets) is used to secure the loan.
How is project finance different from a regular business loan?
Regular business loans are backed by your company’s overall financial strength. Project finance, on the other hand, is based only on the specific project’s ability to make money. This means the project stands alone financially, reducing risk to the company.
What types of projects can be funded this way?
Project finance is typically used for large-scale projects, such as:
- ✔ Infrastructure (roads, bridges, airports)
- ✔ Energy projects (solar farms, power plants)
- ✔ Industrial projects (factories, mining operations)
- ✔ Telecommunications (fiber networks, towers)
What are the main risks involved?
Some common risks include:
- ✔ Construction delays or cost overruns
- ✔ Economic downturns affecting revenue
- ✔ Political or regulatory changes
- ✔ Environmental concerns
How are these risks managed?
The risks are shared between different parties (banks, investors, contractors) based on who is best equipped to handle them. Contracts are put in place to manage responsibilities, ensuring the project stays on track.
What is a Special Purpose Entity (SPE), and why is it used?
An SPE is a separate legal entity created just for the project. It protects the parent company by keeping the project’s finances separate, so if the project faces issues, it won’t affect the main company’s assets.
Why should a company choose project finance over other options?
✔ Limits financial risk to the company
✔ Keeps debt off the company’s balance sheet
✔ Attracts outside investors and lenders
✔ Provides long-term financing options
